Robert MacCulloch
Robert MacCulloch is a native of New Zealand and worked at the Reserve Bank of NZ before he travelled to the UK to complete a PhD in Economics at Oxford University.
Whether the US had elected Democratic Harris or Republican Trump to the White House, the difference in terms of their economic impact on NZ is likely to be small. Why? Trump has successfully shifted the debate toward more protectionism, especially aimed at China, as well as tighter immigration policies. Biden-Harris were scrambling to catch up with him.
The US is only the third largest export partner for NZ, at around 10 per cent of our exports, way behind China and Australia. As for concerns raised by prominent US economists about the size of that country's debt and deficits, they have been exploding under both Democrats and Republicans. In a nutshell, Democrats have been expanding welfare programs, but don't have the guts to sharply raise taxes on Americans, and Republicans are inclined to push for lower taxes, though don’t have the guts to cut welfare on the poorest Americans (and are regularly inclined to push up defense spending).
Both those approaches, on both sides of US politics, have expanded public debt. My Argentine economist friend and coauthor at Harvard Business School has been predicting a debt (and currency) crisis in the US for years now, due to its huge current (trade) deficits and public debt, much like the kind of crises that have broken out in Latin American countries.
The primary debate in the US, which was raised in a letter written by 400 economists critiquing Trump, and in another letter, written by 18 Nobel Laureates, concerns mostly the potential effect of Trump's policies on inequality. That is a domestic US issue, and not one that has any direct implications for the NZ economy. How can one make sense of Trump's economic policies, especially in the context of NZ?
In some ways, one can view them as a mix of traditional right-wing and left-wing ones, which is why the pundits are confused. His idea of tariffing imports is more a left, anti-market policy, whereas his aim to potentially cut taxes, or at least not increase them anymore, is more a right, pro-market policy. Economists preferred way of protecting workers who have lost jobs due to globalization is generally not to interfere with prices and trade – let them flourish and create wealth – but to address the unfairness and equity issues through the tax and transfer system. However, Trump does not want to do that, since it would mean higher taxes.
In many ways, Trumps economic approach can be viewed as wielding out on a grand scale the one National tried, on a much smaller scale, in the NZ election. National wanted to give tax relief to local Kiwis funded by a tax on overseas buyers of our real estate. That is, make foreigners pay for domestic cuts in our taxes. Trump’s plan is to do the same, but where the revenues instead come from tariffs on imports. He figures it’s clever. Target China with tariffs, and so try reducing the economic power of America's great super-power rival; meanwhile get hold of significant revenues in the process, which can be used to hold or cut US taxes, all whilst protecting his voter basis – being working class Americans hurt by globalization.
New Zealand's Labour Party, by the way, is promoting an opposite economic strategy. It is to support free trade without imposing tariffs, and fund a larger welfare state through higher taxes. It is closer to the approach that receives more support by traditional economists. Both Trump’s and NZ Labour’s approaches have a logic to them within their domestic contexts. On the other hand, since National's plan to tax foreign buyers was scuttled by NZ First, it has been left under pressure to both cut taxes and support strong health, education and retirement systems, all funded out of local taxes on a weak domestic economy.
This article was originally published by Down to Earth Kiwi.
